Orlando Magic to borrow $10 million from NBA to offset operating losses

The Orlando Magic plan to borrow about $10 million from the NBA to largely offset operating losses incurred by the franchise, helping to bridge its move into a new arena in 2010.

Alex Martins, the Magic's chief operating officer, said on Tuesday that the club is among as many as 15 teams who intend to tap into a $1.7 billion league-wide credit facility that will soon be supplemented.

SportsBusinessJournal.com was the first to report that the NBA is set to borrow $175 million on Feb. 26, marking one of the first league financings since the crash of the credit markets last fall.

"In general, the NBA has a league-wide credit facility, just like the other leagues do. The league had already utilized the major portion of that," Martins said. "The league went out to the 30 teams and asked if they were able to get another line of credit, would we be interested? We said, 'Yes.' "

The league surveyed its 30 teams, and 15 were interested in acquiring a loan. Each of the 15 teams can borrow a maximum of $11.7 million from the debt proceeds.

Martins said the money will be used to help the club offset huge operating losses.

He estimates the Magic have lost an average of $15 million each season during the last half-dozen years -- and will lose at least another $15 million this season -- and won't begin to break even until the club moves into its new arena in 2010.

"Because of our operational deficits, which will be about a $15 million loss this season, that is not going change until we get in the new building.

"It's a bridge for us. It helps us cover some of our operations losses and debt as opposed to additional equity in the team," Martins said.

It was not known which other NBA teams are borrowing money, although one is believed to be the New Orleans Hornets. The Hornets traded starting center Tyson Chandler on Tuesday, in part, to relieve the financial burden of Chandler's contract.

The NBA's $175 million loan augments an existing $1.7 billion credit facility that uses the NBA's media contracts as collateral to secure loans.

According to SportsBusinessJournal.com, the deal came at a cost, with interest rates up to 8.27 percent, driving home the notion that the era of cheap money in sports has ended.

The 15 teams can use the money as they see fit, but covering operating losses may be high on the list.

The private-placement deal was arranged by JPMorgan Chase and Bank of America, according to SportsBusinessJournal.com.

In a private placement, non-banking lenders such as pension funds and insurers extend the cash, commonly at fixed rates for five- to seven-year terms and at rates higher than what banks offer for floating-rate loans, writes SportsBusinessJournal.com.